I posted on the PBOC FX RRR (ps this is NOT the RRR that is commonly referred to, its a different RRR) earlier:
Eyes will be on the USD/CNY reference rate setting from the People's Bank of China today.
Late in the day in China on Monday the Bank cut the amount of foreign exchange banks must hold as reserves. This change is aimed as providing support for the yuan, to slow its depreciation.
On Monday onshore (CNY) and offshore(CNH) hit their lowest in a year. The PBOC is not unhappy with a falling yuan but do not want it dropping so quickly.
The PBOC said it'd cut the foreign exchange reserve requirement ratio (RRR) by 100 basis points, from 9 to 8% from May 15. The previous move in the FX RRR was when it raised by 200 bps back in December (2021). The change was made to slow the yuan's rise at the time.
Join us for the USD/CNY reference rate setting at 0115 GMT:
- USD/CNY is the onshore yuan. Its permitted to trade plus or minus 2% from this daily reference rate.
- CNH is the offshore yuan. USD/CNH has no restrictions on its trading range.
Nomura note, this in summary
- The PBOC is expected to reduce the FX RRR (reserve ratio requirement on foreign exchange deposits) by another 1% (thus taking it to 7%) by the end of the year.
- The PBOC is sending a signal that it wishes not to see the yuan depreciate too quickly
